Morgan Advanced Materials (LSE:MGAM)Historical Stock Chart

The Annual Report and Financial Statements for the year ended 31 December 2019 (2019 Annual Report) has today been posted or otherwise made available to shareholders:

In accordance with Listing Rule 9.6.1, a copy of the 2019 Annual Report has been uploaded to the National Storage Mechanism and will be available for viewing shortly at: www.morningstar.co.uk/uk/NSM

The 2019 Annual Report is also available on the Company's website at: www.morganadvancedmaterials.com .

Shareholders who have elected not to receive hard copy documents will receive an email notification from the Company advising that the above listed documents are now available.

A further announcement will be made when the Notice of the 2020 Annual General Meeting and Form of Proxy have been posted or otherwise made available to shareholders.

The Company's preliminary results announcement of 25 February 2020 contained a management report as well as audited financial statements which were prepared in accordance with the applicable accounting standards. The financial information set out in the Company's preliminary results announcement of 25 February 2020 does not constitute the Company's statutory accounts for the year ended 31 December 2019. Statutory accounts for 2019 are included in the 2019 Annual Report, which will be delivered to the registrar of companies following the Company's 2020 AGM. The auditors have reported on those accounts; their report was (i) unmodified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2019.

The information below, which is extracted from the 2019 Annual Report, is included solely for the purpose of complying with DTR 6.3.5. This information should be read in conjunction with the Company's preliminary results announcement issued on 25 February 2020 (available at www.morganadvancedmaterials.com ). This announcement is not a substitute for reading the full 2019 Annual Report. All page numbers and cross-references in the extracted information below refer to page numbers in the 2019 Annual Report.

Related party transactions

There are no related party transactions requiring disclosure.

Risk Management

Morgan has an established risk management methodology which seeks to identify, prioritise and mitigate risks, underpinned by a 'three lines of defence' model comprising an internal control framework, internal monitoring and independent assurance processes.

The Board considers that risk management and internal control are fundamental to achieving the Group aim of delivering long-term sustainable growth in shareholder value.

Risks are identified both 'top down' by the Board and the Executive Committee and 'bottom up' through the Group's global business units (GBUs) and divisions. The severity of each risk is quantified by assessing its inherent impact and mitigated probability to ensure that the residual risk exposure is understood and prioritised for control throughout the Group.

Senior executives are responsible for the strategic management of the Group's principal risks, including related policy, guidelines and process, subject to Board oversight.

Throughout 2019, the Board reviewed the status of all principal risks with a significant potential impact at Group level. Additionally, the Audit Committee carried out focused risk reviews of each GBU. These reviews included an analysis of the principal risks, and the controls, monitoring and assurance processes established to mitigate those risks to acceptable levels.

As a result of these reviews, a number of actions were identified to continue to improve internal controls and the management of risk, including:

-- A group wide refresh of the Group's policies and internal control standards.

-- Further roll out of the Group's 'thinkSAFE' programme and development of an environmental strategy.

-- Implementation of new ERP systems in two of the Group's businesses, and establishment of a Programme Office to better manage IT initiatives.

-- Focused actions within each business unit to mitigate risks.

The Board reviewed its appetite for its principal risks and its appetite for these risks is unchanged from the prior year. The Group is willing to take considered risks to develop new technologies, applications, partnerships and markets for its products and to meet customer needs. The Group strives to eliminate risks to product quality and health and safety, which are essential to the success of our products and the safety of our people and contractors.

The appetite for risk in the areas of legal and regulatory compliance is extremely low and the Group expects its businesses to comply with all laws and regulations in the countries in which they operate. The Group has a low appetite for financial risk. Certain risks, such as pension funding, are likely to take a longer period of time to be mitigated. During the year the Board monitored the Group's current risk exposure relative to the Board's appetite for different risks. There were no risks where the current risk exposure exceeded the Board's risk appetite.

As part of the ongoing risk management process referred to above, the Board and the GBUs also identify and assess emerging risks. Emerging risk areas were identified around pensions regulations due to the evolving regulatory environment and climate change and our role in protecting and enhancing the environment. The two emerging risks are included in the table below, together with the details of how they are being managed.

In 2019, the Board performed a deep dive assessment of the potential risks associated with supplying into the electric vehicle market. This review considered risks associated with the scope of Morgan's supply into these markets; and mitigations provided by product quality controls, contractual protections, and the Group's capability to deliver to customer specifications. Through this review, the Board satisfied itself that its level of appetite for risk in this market was proportionate to the opportunities presented.

An indication of the Board's assessment of the trend of each risk - whether the potential severity has increased, decreased or is broadly unchanged over the past year - is provided.

The following are the Group's principal risks and uncertainties, representing those risks that the Board feels could have the most significant impact on achieving the Group's strategy of building a sustainable business for the long-term and delivering strong returns to the Group's shareholders.

Risk description, assessment
and trend from 2018 Mitigation
-------------------------------------------------
OPERATIONAL RISKS
----------------------------------------------- -------------------------------------------------
Technical leadership The Group has a dedicated technology
The Group's strategic success team within each GBU which monitors
depends on maintaining and relevant technology and business developments
developing its technical leadership using technology roadmaps linked to
in materials science over 20 major technology families to ensure
its competitors. it remains at the leading edge of development.
The Group has four Centres of Excellence.
Unforeseen/unmitigated technology These Centres focus Morgan's expertise
obsolescence, the emergence and research resources on further developing
of competing technologies, core technologies and identifying new
the loss of control of proprietary opportunities and applications.
technology or the loss of
intellectual property/know-how The GBU leadership teams proactively
would impact the Group's business monitor their technology priorities
and its ability to deliver and R&D investments. These projects
on its strategic goals. are also regularly reviewed by the Executive
Committee and the Board.
The advanced technological
nature of the Group requires Where Group products are designed for
people with highly differentiated a specific customer, they are developed
skillsets. Any inability to in partnership with the customer in
recruit, retain and develop order to maintain leading-edge differentiation.
the right people would negatively The Group seeks to secure intellectual
impact the Group's ability property protection, where appropriate,
to achieve its strategic goals. for its existing and emerging portfolio
of products and has an in-house counsel
Severity: Moderate dedicated to intellectual property protection
with the support of external advisors.
Trend: Unchanged
The Group continued its global leadership
programme adding an advanced programme
to develop more high-potential commercial,
functional and technical leaders. The
graduate leadership programme continued

to run in 2019.
Further detail on our people can be
found on pages 16 and 17.
Further detail on R&D can be found on
page 20.
=============================================== =================================================
Operational execution/organisational Changes to operational processes are
change/sales effectiveness carefully considered by site, GBU and
As part of the Group's strategy Divisional management before implementation.
to improve the efficiency Operational improvements and savings
of its operations and organisation, are monitored against budget by the
various changes have been GBUs and Executive to ensure that changes
made to operational processes deliver the savings promised without
at individual sites, to the disruption to business operations. New
Group's structure, and the capital investments are approved at
structure of and incentives appropriate levels of the Group and
for our sales force. Further delivery of these overseen by GBU and
improvements and changes are Group management. A new capital expenditure
planned for future years. assessment process was rolled out in
Failure to manage these changes 2019.
adequately could result in
interruption to operations Organisational changes are assessed
or customer service, or a by the Chief Executive Officer, the
failure to maximise the Group's Executive Committee and sometimes the
opportunities. Board before being implemented in line
with local employment regulations.
Severity: Low
Changes to our sales structures and
Trend: Unchanged incentives are reviewed at various levels
of the organisation before being launched.
Further activities to improve sales
effectiveness were rolled out in 2019,
including sales force training, more
targeted incentives and pricing initiatives.
Further initiatives around pricing and
extending the roll out of sales incentives
are planned for 2020.
Further detail on our strategy in action
can be found on pages 19 to 23.
=============================================== =================================================
Portfolio management The Board performs regular reviews of
The Group operates across the Group's portfolio. During 2019 the
a range of product and technology Group closed its China ceramics cores
families. These are subject business and exited its Venezuela Thermal
to long-term market trends Ceramics business.
which may lead to either obsolescence
or opportunities to further Opportunities to acquire businesses
expand the Group. Failure are reviewed on a continuing basis.
to proactively manage the
Group's portfolio of businesses
in line with this technology
profile could lead to the
value of the Group's businesses
being eroded over time or
to a failure to exploit opportunities
to acquire businesses with
the capability to add further
value to the Group.
Severity: Moderate
Trend: Decreased within severity
band
=============================================== =================================================
Macro-economic and political The Group's broad market and geographic
environment spread helps to mitigate the effects
The Group operates in a range of political and economic changes.
of markets and geographies
around the world and could Budgets and forecasts for Morgan's different
be affected by political, businesses are used to monitor delivery
economic, social or regulatory against expectations and anticipate
developments or instability, potential external risks to performance.
for example an economic slowdown These are subject to regular review
or issues stemming from oil by the Executive Committee and the Board.
and natural resources price
shocks. The overall macro-economic environment
has weakened during the course of the
The UK's exit from the EU year, although the Group's revenue has
may have an impact on the proved resilient. Some longer-term metrics
Group if subsequent tariff are showing signs of potential weakness.
changes, or border effects,
negatively impact the profitability Global issues considered by the Board
of the Group's products. The this year include the continuing impact
current value of Group UK and uncertainty relating to the trade
exports to the EU is approximately negotiations between the European Union
GBP25 million, and imports and the United Kingdom, as well as US/China
into the UK from the EU are and Korea/Japan trade relations. The
approximately GBP15 million. impact of the UK's exit from the EU
could be mitigated in the medium term
Severity: High by moving production to alternative
sites where tariffs are not applied
Trend: Increased within severity to products.
band
=============================================== =================================================
Environment, health and safety Managing its operations safely is the
(EHS) Group's number one priority. The Group
The Group operates a number has a comprehensive EHS programme managed
of manufacturing facilities by the Group EHS Director, with clear
around the world. A failure EHS standards and a refreshed programme
in the Group's EHS procedures of audits to assess compliance.
could lead to environmental
damage or to injury or death The Group EHS Director sets annual priorities
of employees or third parties, for EHS which are approved by the EHS
with a consequential impact Steering Group (comprising the Executive
on operations and increased Committee and GBU
risk of regulatory or legal
action being taken against EHS leaders) These form the basis for
the Group. Any such action individual sites' own EHS priorities
could result in both financial and plans and complement the Group's
damages and damage to reputation. 'thinkSAFE' behavioural safety programme.
Given the long history of
many of the operations of EHS performance is monitored by the
the Group, there is also a Group Executive and the Board. EHS metrics
risk that historical operating are assessed and overall EHS performance
and environmental standards has improved in 2019.
may not have met today's environmental
regulations. In addition, As at 31 December 2019, the Group was
the Group may have obligations managing projects to remediate legacy
relating to prior asset sales contamination at a number of former
or closed facilities. operational sites in conjunction with
external specialists and relevant authorities.
Severity: High
The Group's commitment to protecting
Trend: Unchanged and enhancing the environment, in response
to the emerging risk of climate change,
is set out on pages 12 to 13.
Details of the Group's provisions and
contingent liabilities can be found
in note 25 to the consolidated financial
statements.
=============================================== =================================================
Product quality, safety and Many of the Group's products are designed
liability to customer specifications. Our businesses'

Products used in applications quality management systems and training
for which they were not intended help ensure that all of Morgan's products
or inadequate quality control/over-commitment meet or exceed customer requirements
on customer specifications and national/international standards.
could result in products not
meeting customer requirements, The Group Legal Policy requires that
which could in turn lead to contracts relating to products used
significant liabilities and in potential high-risk applications
reputational damage. are subject to legal review to ensure
that appropriate protections are in
Some of our products are used place for product quality risks.
in potentially higher risk
applications, for example The Group insurance programme includes
in the aerospace, automotive, product liability insurance; this Group-level
medical and power industries. insurance is reviewed annually by the
Board.
Severity: High
Trend: Unchanged
=============================================== =================================================
Risk description, assessment
and trend from 2018 Mitigation
------------------------------------------------
IT and cyber security A new Chief Information Officer was
Information security/cyber appointed to the Group's Executive Committee
risks are dynamic and ever-present in 2019 to drive delivery of the Group's
in the external environment. IT strategy. The Group's IT Security
If the Group were to lose policies have been strengthened in 2019,
critical data or information, and enhanced security resource will
including proprietary technology be joining the Group in 2020.
information, through inadequate
data management or compromised The Group has continued to comply with
information security, the the National Institute of Standards
business would be impacted and Technology (NIST) cybersecurity
and could suffer reputational framework in the US and the EU's General
damage. Data Protection Regulations without
issue in 2019.
The effective management of
the Group's Information Technology Focused deployment of enterprise resource
(IT) infrastructure is important planning (ERP) systems in those businesses
in enabling our businesses where a need for improvement continued
to deliver customer requirements in 2019. These deployments are managed
reliably. If a key business in line with IT project management standards.
system were to fail or core
systems implementation were
to be ineffective, the ability
of the business to deliver
on its strategic goals might
be impacted.
Severity: High
Trend: Increased
==================================== ================================================
Supply chain/business continuity The Group has a diversified manufacturing,
The Group has a number of customer and geographic base which provides
potential single-point exposure a level of resilience against single-point
risks, which include: exposures. Were any site to be unavailable,
Single-point supplier - a production in many cases could be switched
significant interruption of to other sites. A new Business Continuity
a key internal or external policy has been rolled out to support
supply could impact business minimum standards at the Group's most
continuity. important sites for intercompany supply.
Single-point customer - the
unmitigated loss of a major Management of these risks also involves
customer could have an impact monitoring and reviewing supply chains
on Group profit. The Group's (internal and external), dual/multiple
largest customer represents sourcing of materials or strategic stock,
circa 2% of Group revenue. site security and safety mechanisms,
Single-point site - a key business continuity plans, maintenance
site exposed to a strike, of product quality and strong customer
a natural catastrophe or serious relationships.
incident, such as fire, could
impact business continuity. The Group provides clear and timely
One Group site, Hayward, is communication to ensure appropriate
situated in the California safety measures are taken by all employees
earthquake zone, (US). Certain working in areas affected by communicable
of the Group's businesses disease.
are important for intercompany
supply purposes. The Group insurance programme includes
business interruption cover and specific
Communicable disease could cover in relation to the impact of an
also impact the supply chain earthquake in California, US; this Group-level
and ability of employees to insurance is reviewed annually by the
travel to work in affected Board.
areas.
The outbreak of the coronavirus
has led to an extended shut
down of our manufacturing
facilities in China. Our focus
has been to take actions and
precautions to help ensure
the safety and wellbeing of
our employees. Whilst we cannot
be certain how long this situation
will last, based on the delayed
startup of our production
facilities since the lunar
new year break, we currently
anticipate that this will
have an adverse impact on
first half revenues of around
GBP7.0 million and on first
half headline operating profit*
of around GBP3.5 million.
The coronavirus has been spreading
to countries outside of China,
including to Italy and South
Korea. Our plant in the affected
area of Northern Italy, we
expect to be closed for two
weeks.
Severity: Moderate
Trend: Unchanged
==================================== ================================================
Risk description, assessment
and trend from 2018 Mitigation
-------------------------------------------------
FINANCIAL RISKS
--------------------------------------- -------------------------------------------------
Treasury The Group's treasury function operates
The Group's global reach means on a risk-averse basis. Required controls
that it is exposed to uncertainties over selection of banks, cash management
in the financial markets, and other treasury practices and payments
the fiscal jurisdictions where globally are documented in Morgan's
it operates, and the banking Treasury Policy and related procedures.
sector. These heighten the The Group treasury team manages the
Group's funding, foreign exchange, Group's funding, liquidity, cash management,
tax, interest rate, credit interest rate, foreign exchange, counterparty
and liquidity risks as well credit and other treasury-related risks.
as the risk that a bank failure Treasury matters are regularly reviewed
could impact the Group's cash. by the Board and Audit Committee.
Severity: Moderate In 2019 the Group repaid $75 million
of private placement debt utilising
Trend: Decreased its existing revolving credit facility.
During 2019 the Group executed its first
one-year extension option available
under its revolving credit facility,
extending the maturing date to September
2024.
Further detail on our Treasury Policy
is set out in the Group Financial Review,
which can be found on page 40.
======================================= =================================================
Tax The Group's tax function, working in
The Group operates in many conjunction with external specialists
jurisdictions around the world as required, closely monitors fiscal
and could be affected by changes developments and changes such as BEPS,
in tax laws and regulations to ensure that the Group's tax arrangements
within the complex international and practices continue to comply with
tax environment. the requirements of all relevant jurisdictions
whilst also enabling efficient management
The OECD's Base Erosion and of the tax liability. The Group's Head
Profit Shifting (BEPS) framework of Tax reports to the Audit Committee
provides additional obligations on key tax issues and initiatives.
and filing requirements for
the Group as countries implement The Group has published its tax strategy
the actions in the framework. on its website in line with UK corporate
These could have an impact governance requirements.
on the tax paid by the Group.
Severity: Moderate
Trend: Unchanged

======================================= =================================================
Pension funding Morgan's primary means of mitigating
The Group sponsors several pensions funding risk is proactive management
defined benefit pension arrangements, of the pension scheme assets and liabilities
(the Schemes), whose liabilities through an integrated pension strategy
are subject to fluctuating focusing on funding, investment and
interest rates, investment benefit risk. This involves both internal
values and inflation. This management within the Group and also
coupled with the increased externally through the Schemes' Trustees,
longevity of members and a corporate actuaries and professional
tougher regulatory funding advisers.
regime will result in increased
funding burdens on the Group In the UK, both Schemes are closed to
in the future. the future accrual of benefits. In consultation
with the Company, the Trustees have
The deficit in Morgan's global adopted a proactive approach to the
defined benefit pension schemes management of risk in the Schemes' investment
calculated on the basis required portfolios, significantly reducing their
for IAS 19 accounting disclosures unhedged interest and inflation rate
decreased from GBP190.4 million exposure. Following the most recent
at 31 December 2018 to GBP156.8 Scheme valuations in March 2019, Company
million as at 31 December contributions will increase to GBP16.5
2019. million pa from 2020 for the length
of current Recovery Plans (2025 and
The Group also participates 2027).
in two multi-employer defined
benefit schemes in the US, The impact of the evolving regulatory
both of which have significant environment for occupational pensions,
funding deficits. in particular the likely passing of
the Pensions Bill in Parliament, will
Severity: High be monitored closely in 2020.
Trend: Unchanged In the US, in June 2016 one defined
benefit Pension Plan completed a full
legal termination, and for the other
remaining Scheme, a formal offer of
a present-value-equivalent, lump-sum
cash payment was made to members. In
December 2017, the Company made an additional
contribution of $36 million to this
Scheme and agreed a move to a significantly
de-risked investment portfolio.
A liability management strategy for
US multi-employer plan is being refined
for action in 2020.
======================================= =================================================
Risk description, assessment
and trend from 2018 Mitigation
----------------------------------------------
LEGAL AND COMPLIANCE RISKS
------------------------------------ ----------------------------------------------
Contract management The Group has an in-house legal function
As a global advanced materials supplemented by specialist external
business supplying components lawyers.
into critical applications,
the Group may be exposed to The Group Legal Policy requires in-house
liabilities arising from the legal review of high-value or high-risk
use of its products. Ineffective contracts to ensure they contain appropriate
contract risk management could protections for the Group. The Policy
result in significant liabilities requires Chief Executive Officer approval
for the Group and could damage before a business can enter into an
customer relationships. unlimited liability contract or one
where the liability cap exceeds GBP5
Severity: Significant million.
Trend: Unchanged To the extent that risk cannot be mitigated
through contractual arrangements, the
Group has insurance cover in place,
including product liability insurance.
==================================== ==============================================
Compliance The Group is committed to the highest
The Group's global operations standards of corporate and individual
must comply with a range of behaviour. To support this, in 2018
national and international the Group issued the Morgan Code. The
laws and regulations including Code defines the Group's approach to
those related to bribery and doing business ethically and confirms
corruption, human rights, Morgan's commitments to high standards
trade/export compliance and of ethical behaviour. The Code is supported
competition/anti-trust activities. by a range of policies, standards and
guidance; training materials; the provision
A failure to comply with any of an ethics hotline for employees;
applicable laws/regulations and systems to support effective screening
could result in civil or criminal of and due diligence on third parties.
liabilities and/or individual
or corporate fines and could Further improvements to the programme
also result in debarment from were delivered in 2019, including a
government-related contracts suite of mandatory ethics training for
or rejection by financial staff, covering topics such as anti-bribery
market counterparties and and corruption, competition law, harassment
reputational damage. and bullying and trade controls. In
depth face-to-face training has also
Compliance: Moderate been held in some of the Group's higher
risk regions. The Group's speak-up processes
Trend: Unchanged were relaunched in 2019 which enable
staff to report concerns anonymously.
The Group also has an Export Compliance
Director in the US whose role is dedicated
to ensuring compliance with export controls.
In addition to Group-level compliance
specialists, our businesses are required
to establish compliance officer roles,
which are responsible for supporting
local training and monitoring. Morgan
also employs country-specific trade
and export compliance specialists in
higher-risk businesses and jurisdictions.
Further details on ethics and compliance
can be found on pages 12 to 13.
==================================== ==============================================

Directors' Responsibility Statement

The 2019 Annual Report contains the following statements regarding responsibility for the financial statements in compliance with DTR 4.1.12. Responsibility is for the 2019 Annual Report and Financial Statements and not the condensed statements required to be set out in the Annual Financial Report announcement.

Each of the Directors in post as at 25 February 2020, the names and roles of whom are set out on pages 48 and 49 of the 2019 Annual Report, confirms to the best of their knowledge:

-- the Group's Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

-- the management report (comprising the Directors' Report and the Strategic Report) includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Enquiries: Stephanie Mackie, Company Secretary

Telephone: 01753 837000

Notes:

Legal Entity Identifier: I4K14LL95N2PHDL7EG85

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